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  1. #1
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    Default Warfare: Food Supply/Access

    Battlefield for "The Next War", perhaps?

    Forget oil, the new global crisis is food
    By Alia McMullen, Financial Post Published: Friday, January 04, 2008

    BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe

    A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.

    "It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."

    Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.

    "The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.

    The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.
    Article

    Wheat at $9.45 a Bu.; Beans (Jan., 2008 Contract) at around $11.50 a Bu.; and Corn at $4.66 a Bu. in January is more than a little bit scary.

    The thought/principle of using food supplies as a weapon by the US has always been firmly denounced by politicians of all stripes here in the US in the past (as far back as I can remember). Occasionally, some pol would slip up, and then would get firmly, but throughly trashed from all quarters for echoing the unthinkable. And deservedly so.

    But do those same rules still apply in today's world? - particularly with oil pricing where it is, where there's more than a little feeling in the general public that OPEC member nations are not only gouging us for oil, but are also baiting us at every turn.

    I'm in no way advocating this approach, but I could see rapidly growing support for economic warfare through restrictions on food supplies (particularly exports) developing here in the US.

    Thoughts and Comments appreciated.

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    Fortune, 29 May 08: Wal-Mart Puts the Squeeze on Food Costs
    With gas, grain, and dairy prices exploding, you'd think the biggest seller of corn flakes and Cocoa Puffs would be getting hit by rising food costs. But Wal-Mart has temporarily rolled back prices on hundreds of food items by as much as 30% this year. How? By pressuring vendors to take costs out of the supply chain.

    "When our grocery suppliers bring price increases, we don't just accept them," says Pamela Kohn, Wal-Mart's general merchandise manager for perishables. To be sure, Wal-Mart isn't the only retailer working to cut fat from the food chain, but as the largest grocer - Wal-Mart's food and consumables revenue is nearly $100 billion - it has a disproportionate amount of leverage. Here's how the retailer is throwing its weight around.....
    Wal-Mart is not just the largest single importer into the U.S. - it is also the largest single grocery importer. And the price impacts of pressuring vendors to reduce unnecessary packaging costs, etc. are not just felt in the US - Wal-Mart is present and similarly active in Mexico, Canada, all of Central America, Argentina and Brazil in South America, the UK, China, Japan, and is just entering the Indian market. However, even given all that leverage, the supply-chain is still hit hard by increasing transport costs. That is driving the concomitant rapid expansion of the locovore concept (global, not just in the US - as illustrated by the Guatemalan farmer project), despite the impact on selection and quality:
    ....Wal-Mart has been going green, but not entirely for the reasons you might think. By sourcing more produce locally - it now sells Wisconsin-grown yellow corn in 56 stores in or near Wisconsin - it is able to cut shipping costs. "We are looking at how to reduce the number of miles our suppliers' trucks travel," says Kohn. Marc Turner, whose Bushwick Potato Co. supplies Wal-Mart stores in the Northeast, says the cost of shipping one truck of spuds from his farm in Maine to local Wal-Mart stores costs less than $1,000, compared with several thousand dollars for a big rig from Idaho. Last year his shipments to Wal-Mart grew 13%....

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    The linked article is a bit alarmist in its tone, although the basic data it's built on is pretty much on target. However, for a more cogent and reasoned look at the issue I recommend a read of this brief from the 6 Dec 07 issue of The Economist:

    Food Prices: Cheap No More
    ....According to the World Bank, 3 billion people live in rural areas in developing countries, of whom 2.5 billion are involved in farming. That 3 billion includes three-quarters of the world's poorest people. So in principle the poor overall should gain from higher farm incomes. In practice many will not. There are large numbers of people who lose more from higher food bills than they gain from higher farm incomes. Exactly how many varies widely from place to place.

    Among the losers from higher food prices are big importers. Japan, Mexico and Saudi Arabia will have to spend more to buy their food. Perhaps they can afford it. More worryingly, some of the poorest places in Asia (Bangladesh and Nepal) and Africa (Benin and Niger) also face higher food bills. Developing countries as a whole will spend over $50 billion importing cereals this year, 10% more than last.

    Rising prices will also hurt the most vulnerable of all. The World Food Programme, the main provider of emergency food aid, says the cost of its operations has increased by more than half in the past five years and will rise by another third in the next two. Food-aid flows have fallen to their lowest level since 1973.

    In every country, the least well-off consumers are hardest hit when food prices rise. This is true in rich and poor countries alike but the scale in the latter is altogether different. As Gary Becker, a Nobel economics laureate at the University of Chicago, points out, if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but in very poor ones by over 20%.

    Not all consumers in poor countries are equally vulnerable. The food of the poor in the Andes, for example, is potatoes; in Ethiopia, teff: neither is traded much across borders, so producers and consumers are less affected by rising world prices. As the World Bank's annual World Development Report shows, the number of urban consumers varies from over half the total number of poor in Bolivia, to about a quarter in Zambia and Ethiopia, to less than a tenth in Vietnam and Cambodia.

    But overall, enormous numbers of the pooróboth urban and landless labourersóare net buyers of food, not net sellers. They have already been hard hit: witness the riots that took place in Mexico over tortilla prices earlier this year. According to IFPRI, the expansion of ethanol and other biofuels could reduce calorie intake by another 4-8% in Africa and 2-5% in Asia by 2020. For some countries, such as Afghanistan and Nigeria, which are only just above subsistence levels, such a fall in living standards could be catastrophic.....

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    I'm not so sure this argument is as viable as it appears at first glance. The author points mostly to the rise in corn prices since it is linked to many other food staples. While he correctly points out that the cost increase is due to the rise in demand of corn for ethenol products, he appears to ignore the basic market process. The rise in price is due to the rise in demand: as demand increases prices goes up and as demand decreases, prices go down. Right now, we've had a spike in demand for corn that does not correspond with production. I would think that if the demand continues, corn growers will increase their production thereby decreasing the overall price.

    As for using food as a weapon, I see international law concerns. Although food is certainly used by military forces, and international law does account for dual use when it comes to targeting (e.g. a bridge could be a lawful target since it allows an enemy to deploy forces despite the fact it is also used by civilians to take food to market), I doubt it would go this far. I don't really see a difference between carpet bombing a city and freezing food shipments to that city. The end result is the same: the targeting of the population as a whole by lethal means. But maybe I'm wrong. I'd be willing to consider arguments to the contrary.
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    You aren't, LawVol. That would be -classic- collective punishment.

    Blowing up the enemy's shipping, thereby also happening to reduce his ability to bring food in, is one thing.

    Specifically denying food to civilians? That's a war crime, IMHO.

    That said: We're hearing a lot about higher crop prices. However, for reference...What do normal crop prices for the quoted crops look like?

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    Default Looking to be unlikely....

    Originally posted by LawVol:
    ...The rise in price is due to the rise in demand: as demand increases prices goes up and as demand decreases, prices go down. Right now, we've had a spike in demand for corn that does not correspond with production. I would think that if the demand continues, corn growers will increase their production thereby decreasing the overall price....
    ...that farmers are going to be able to vastly increase even more corn production. It's already happened (for the 2007 planting season; see below), and like the article points out, we've got corn running at over $4.50 a Bu. And nobody grows more corn than the US.

    Just some numbers:
    1) For 2006, the US grew 10.535 billion bushels of corn. The 2006 crop ended up 210 million bushels smaller than the November 2006 forecast and 579 million smaller than the September 2006 forecast.
    2) In September, 2007, The USDA forecasted the 2007 U.S. corn crop at 13.308 billion bushels, 254 million (1.9 percent) larger than the August forecast and 2.773 billion (26.3 percent) larger than the 2006 crop.
    3) Final 2007 crop numbers will be issued in January, 2008.

    A good friend who farms 2300+ acres in central IL says that in the $3.55 to $3.75 per Bu. price range for corn, farmers start to make a pretty good buck. Costs vary by region, but the land they farm is highly productive, so that's their experience this year.

    Also, one other point made to me is that the Congress just upped the Renewable Fuel Standard (recently passed 2007 Energy bill) to use a min. of 36 billion gal. of "Biofuels" by 2022, which is more than a 500% increase of the 2005 Standards. "Biofuels" = Ethanol, which here in the US, comes almost exclusively from corn. So there's going to be even higher demand, mandated Congressionally.

    September, 2007 exports of U.S. corn during the current marketing year were projected at 2.25 billion bushels, 130 million larger than exports during the 2006-07 marketing year and the largest in 18 years. Info. From a Univ. of IL Cooperative Extension Researcher

    The lead article posted has an obvious slant to it (that's their business, so they got to push it hard), but the Economist article reminds me of a "Whistling past the graveyard" type of article, which is akin to saying "Well, if everything goes perfectly, we'll all be fine". Doesn't mean it's going to happen that way.

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    Don't forget food needs water. Water is the short pole.
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